In 1981, the Committee decided to attempt to obtain retroactive excess medical malpractice coverage. Hence Gencon began contacting various insurance brokers, including Sten-Re, to obtain proposals from insurance companies for the excess coverage. These brokers would submit the proposals to Gencon, who, after reviewing the policies and negotiating any changes, would summarize them and make a recommendation to the Committee as to which policy to accept.

In late 1981 or early 1982, Sten-Re obtained a favorable proposal from St. Paul Surplus Lines Insurance Co. ("St. Paul Insurance"). The policy insured AHS for its liabilities in excess of its existing policy coverage for the years in question and a $ 1,000,000 self-insurance retention, up to a maximum of $ 10,000,000. AHS accepted the St. Paul policy based on the recommendation of Gencon.

In 1984, judgment was entered against Dr. Nancy Rich, an AHS staff physician at Hinsdale Hospital, for the wrongful death of Renee Barenbrugge for failure to diagnose breast cancer. Hinsdale had previously contracted with Dr. Rich to provide certain medical malpractice insurance coverage for her. Because AHS's primary insurance coverage for the relevant period had been exhausted, AHS submitted the claim to St. Paul Insurance. St. Paul, however, refused to cover the claim because the policy did not extend to licensed physicians or surgeons acting within the scope of their duties. As a result, on November 13, 1986, AHS paid $ 2,268,811.03 on behalf of Dr. Rich to satisfy the judgment against her;
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$ 1,268,811.03 of this amount would have been paid by St. Paul Insurance had the policy acquired by Sten-Re covered liabilities incurred by physicians.

In August, 1989, AHS accepted $ 800,000 from Gencon in settlement of its claims arising out of the refusal of St. Paul Insurance to cover the Barenbrugge judgment. Now AHS and Gencon unite to bring this action for indemnity against Sten-Re and the individual defendants; AHS also submits a claim for contribution.

DISCUSSION

Summary judgment is to be granted when "there is no genuine issue as to any material fact and [] the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Summary judgment is appropriate only when, after drawing all reasonable inferences in favor of the party opposing the motion, no reasonable trier of fact could find for the nonmoving party. Lund's, Inc. v. Chemical Bank, 870 F.2d 840, 844 (2d Cir. 1989). However, the nonmoving party cannot avoid summary judgment by resting solely on the contentions in its pleadings. Rather, if the moving party puts forth evidence on an issue, the nonmoving party "must set forth specific facts showing there is a genuine issue for trial." Fed. R. Civ. P. 56(e).

I. The Indemnity Claims

Indemnification permits a party held legally liable to shift the entire loss to another. Mas v. Two Bridges Associates, 75 N.Y.2d 680, 555 N.Y.S.2d 669, 674, 554 N.E.2d 1257 (1990). It usually arises from an express agreement by which one party agrees to hold the other harmless for claims brought against it by a third party. Knight v. H.E. Yerkes & Assoc., Inc., 675 F. Supp. 139, 143 (S.D.N.Y. 1987). When, as in the case at bar, there is no express contractual provision for indemnification, an implied right of indemnification can still be found. Under New York law, a person is entitled to implied indemnity when he, "in whole or in part, has discharged a duty which is owed by him but which as between himself and another should have been discharged by the other." Matter of Poling Transp. Corp., 784 F. Supp. 1045, 1048 (S.D.N.Y. 1992) (quoting McDermott v. City of New York, 50 N.Y.2d 211, 428 N.Y.S.2d 643, 646, 406 N.E.2d 460 (1980)).

Interpreting New York law, the Second Circuit has identified two sets of circumstances in which a right to implied indemnification may exist. First, indemnification can be implied from the special nature of a contractual relationship between two parties; this has been called the "implied contract theory." Peoples' Democratic Republic of Yemen v. Goodpasture, Inc., 782 F.2d 346, 351 (2d Cir. 1986). Alternatively, indemnification can be implied when there is a great disparity in the fault of two tortfeasors, and one of the tortfeasors has paid for a loss that was primarily the responsibility of the other; this tort-based doctrine has been called "implied-in-law" indemnity. Id.

In Gencon I, defendants argued that the facts set out in the Complaint did not support a right to indemnification under the implied in law theory. Without reaching the merits of this argument, we denied their motion because they failed to make an argument concerning the implied contract theory, and the relationships of the parties were not sufficiently detailed in the Complaint to enable us to determine as a matter of law whether such theory was applicable. Defendants have now come forward with undisputed facts which reveal that the relationships of the parties were such that, as a matter of law, plaintiffs are not entitled to indemnification under either theory.

As outlined in plaintiffs' own briefs, Sten-Re was but one of several brokers contacted by Gencon to aid in obtaining excess retroactive medical coverage.
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After Sten-Re received an initial proposal from St. Paul, Gencon sent directly to St. Paul a specimen policy that it preferred. Meanwhile, a competing broker obtained a favorable proposal from Columbia Casualty Company ("CNA"), and "unfortunately for Sten-Re," Gencon initially recommended to the Committee that it accept the CNA proposal. Plaintiffs' Memorandum in Opposition at 16.

CNA's original proposal included coverage of both "incurred but not reported claims" and "adverse development of known claims." Before this policy was accepted, however, CNA dropped the adverse development portion of their proposal; Gencon thereafter contacted Sten-Re to inquire as to whether St. Paul would submit a proposal concerning adverse development claims. Sten-Re obtained such a proposal and forwarded it to Gencon. After reviewing the proposal and finding it favorable, Gencon "sent a memorandum . . . to the Malpractice Advisory Committee seeking authorization to purchase the St. Paul retroactive adverse development policy." Id. at 17. Gencon represented that the St. Paul policy, in addition to the CNA policy, would provide the complete coverage of the original CNA proposal. On the basis of Gencon's memorandum the Committee accepted both the CNA and St. Paul proposals in April, 1982.

Thereafter, Gencon made several inquiries of Sten-Re concerning the St. Paul proposal, and requested several changes, which were effected. Both Sten-Re and Gencon received commissions for the actual placement of the St. Paul policy.
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New York law does not permit a party to seek contribution when the underlying liability is for breach of contract. Board of Educ. v. Sargent, Webster, Crenshaw & Folley, 71 N.Y.2d 21, 523 N.Y.S.2d 475, 517 N.E.2d 1360 (1987). In Gencon I, we did not dismiss AHS's claim for contribution because it was unclear from the Complaint whether AHS's liability to Dr. Rich was based on breach of contract. The undisputed facts now reveal, and AHS concedes, that it was indeed based on Hinsdale Hospital's contractual obligation to Dr. Rich. AHS argues, however, that its contribution claim should not be dismissed because its liability to Dr. Rich could have been based on a duty independent of the contract. AHS relies on Sommer v. Federal Signal Corporation, 79 N.Y.2d 540, 583 N.Y.S.2d 957, 593 N.E.2d 1365 (1992), which upheld a contribution claim where the underlying cause of action was one where the parties' relationship was initially formed by contract, but there was a claim that the contract was performed negligently. AHS contends that if it had not paid the Barenbrugge judgment, Dr. Rich could have sued it for negligence in addition to breach of contract because at the time of the judgment the primary policies were not exhausted and yet AHS appealed the verdict without consulting Dr. Rich; by the time the appeals were completed, the policies were exhausted. AHS's reliance on Sommer is misplaced.

Sommer involved a fire alarm company's breach of contract which resulted in a small fire's spreading out of control. 583 N.Y.S.2d at 959. The Court of Appeals held that these facts could give rise to tort liability separate from the contract, which liability would support a contribution claim. The Court explained that the nature of the alarm company's services imposed a duty to act with reasonable care:

Fire alarm companies [] perform a service affected with a significant public interest; failure to perform the service carefully and competently can have catastrophic consequences. The nature of Holmes' services and its relationship with its customer therefore gives rise to a duty of reasonable care that is independent of Holmes' contractual obligations.

Id. at 962. Such a duty is imposed by public policy rather than by the contract between the parties. Id. at 961.

By contrast, the instant case involves a contract to provide malpractice insurance. Failure of AHS to provide such insurance would not have resulted in "catastrophic consequences" such that public policy requires the imposition of a duty independent of the contract. Rather, if AHS had refused to pay the Barenbrugge judgment, Dr. Rich simply would have sued AHS to seek the benefit of her contractual "Merely alleging that the breach of contract duty arose from a lack of due care will not transform a simple beach of contract into a tort." Id. at 961 (citations omitted).

Because AHS's liability to Dr. Rich was based on breach of contract, and there is no independent duty creating a basis for contribution, AHS cannot, as a matter of law, seek contribution from Sten-Re.

CONCLUSION

For the foregoing reasons, defendants' motion for summary judgment on all claims is granted.

SO ORDERED.

Date: July 22, 1994

New York, New York

William C. Conner

United States District Judge

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